Friday's highly anticipated March nonfarm payroll report is dominating trading action in the mortgage market today - as it will likely do all week long. The consensus guesstimate of all economists is tilted in favor of a gain of 190,000 jobs. If this projection proves accurate -- it will mark only the second month of job growth since the recession began in December 2007, and the largest gain since March of last year. Government jobs are expected to account for the bulk of the job growth, as Uncle Sam hires hundreds of thousands of workers to assist in the once-in-a-decade headcount of all Americans. Look for some muddled reactions to this data.
· The mortgage market has currently priced in completely expectations that March payrolls grew by roughly 190,000 while the jobless rate remained steady at 9.7%. If the actual numbers match or exceed this expectation look for the stock market to rally at the expense of fractionally higher mortgage interest rates.
· On the other hand, should the actual headline payroll figure post a reading of 100,000 or less -- and/or should the national jobless rate climb to 9.8% or higher - there is a strong chance selling pressure in the equity markets will develop that will in turn produce a solid flow of "flight-to-quality" capital into the credit markets sufficient enough to be supportive of steady to fractionally lower rates. While such an outcome is certainly possible -- there is nothing in terms of current macro-economic data to indicate such a result is probable.
The Conference Board, a private non-profit global business organization, said its index of consumer attitudes rose to 52.5% in March from an upwardly revised 46.4% in February, driven by a slight increase in optimism about the labor market. The "jobs hard to get" component of this index declined to 45.8% from 47.3%, while the "jobs plentiful" component increased to 4.4% from 4.0%. The fractionally improvement in both of these measures of labor market conditions was more than enough to cause already skittish investors to nudge mortgage interest rates a touch higher.
If investors were to look at the consumer confidence numbers from a wider perspective -- they would quickly see that today's modest improvement still leaves the overall index almost perfectly flat over the past 10 months - certainly not worthy of the negative mortgage market response it generated earlier today. I wouldn't be surprised to see calmer, cooler headed mortgage-backed security investors move in before the end of the day and return the Fannie Mae 4.5% 30-year security back to roughly the point where it closed yesterday. That assessment is not in any way intended to suggest your rate sheets will look any better this afternoon - because as you well know the golden rule applies here -- "he/she who has the gold makes the rules." Look for the "rule makers" to be exceptionally stingy in front of Friday's nonfarm payroll report - even if underlying conditions in the mortgage-backed securities market improve.
Tuesday, March 30, 2010
Friday, March 26, 2010
Friday, March 26, 2010
Credit market participants are licking their wounds following two dismal Treasury note auctions earlier in the week.
News from the Commerce Department this morning showing the economy grew at a slightly less brisk pace in the fourth quarter than previously estimated went largely unnoticed by mortgage investors. Gross Domestic Product (a statistical measure of the total market value of all final goods and services produced in the country) expanded at a 5.6% annual rate, instead of the 5.9% pace estimated earlier.
The focus of all mortgage investors will shift to next Friday's release of the March nonfarm payroll figures. Most economists are calling for a strong 180,000 job gain in the headline number and a national jobless rate continuing to hover at 9.7%. If the actual numbers match or fall close to this consensus forecast, the impact on mortgage interest rates will likely be minimal -- since these numbers are already "priced-in" to most rate sheets. In the off-chance the actual headline payroll number exceeds 200,000 and/or the jobless rate falls to 9.6% or less -- the upward pressure on mortgage interest rates will increase noticeably.
The mortgage market will close early at noon ET (instead of the more traditional 2:00 p.m. ET) on Friday for the Good Friday Holiday. Friday's going into a holiday weekend historically had higher rates - just an FYI!
News from the Commerce Department this morning showing the economy grew at a slightly less brisk pace in the fourth quarter than previously estimated went largely unnoticed by mortgage investors. Gross Domestic Product (a statistical measure of the total market value of all final goods and services produced in the country) expanded at a 5.6% annual rate, instead of the 5.9% pace estimated earlier.
The focus of all mortgage investors will shift to next Friday's release of the March nonfarm payroll figures. Most economists are calling for a strong 180,000 job gain in the headline number and a national jobless rate continuing to hover at 9.7%. If the actual numbers match or fall close to this consensus forecast, the impact on mortgage interest rates will likely be minimal -- since these numbers are already "priced-in" to most rate sheets. In the off-chance the actual headline payroll number exceeds 200,000 and/or the jobless rate falls to 9.6% or less -- the upward pressure on mortgage interest rates will increase noticeably.
The mortgage market will close early at noon ET (instead of the more traditional 2:00 p.m. ET) on Friday for the Good Friday Holiday. Friday's going into a holiday weekend historically had higher rates - just an FYI!
Thursday, March 25, 2010
Thursday, March 25, 2010
Yesterday's 5-year note auction was a bust - which is making investors extremely skittish as Uncle Sam returns to the credit markets this afternoon looking to borrow $32 billion in the form of 7-year notes. The unbridled wave of federal spending is beginning to create anxiety and uncertainty among global investors about Uncle Sam's long-term ability to service his ballooning mountain of debt. Sensitivity levels are particular high as the debt crisis spasms of Greece and Portugal produce financial headlines around the world. The current credit market environment will make it particularly difficult for the Treasury Department to peddle today's $32 billion stack of 7-year notes without a substantial "mark-down" in the price of this instrument. If such an event occurs, the upward pressure on mortgage interest rates will not likely abate much today.
The Labor Department reported earlier this morning that the number of workers standing in line to file first-time claims for jobless benefits fell 14,000 to a seasonally adjusted 442,000 during the week ended March 20th. The four-week moving average of new claims, a process that irons out the week-to-week volatility of the raw data, fell 11,000 to 453,000. The number of people enrolled in the government's Emergency Unemployment Compensation program fell sharply as well. The employment sector appears to be showing some faint signs of life after lying comatose for the better part of two-years. Even so, until the total number of initial jobless claims falls below 400,000 on a week-over-week basis this data will generally continue to be viewed by most analysts as supportive of the prospects for steady to perhaps fractionally lower rates.
The Labor Department reported earlier this morning that the number of workers standing in line to file first-time claims for jobless benefits fell 14,000 to a seasonally adjusted 442,000 during the week ended March 20th. The four-week moving average of new claims, a process that irons out the week-to-week volatility of the raw data, fell 11,000 to 453,000. The number of people enrolled in the government's Emergency Unemployment Compensation program fell sharply as well. The employment sector appears to be showing some faint signs of life after lying comatose for the better part of two-years. Even so, until the total number of initial jobless claims falls below 400,000 on a week-over-week basis this data will generally continue to be viewed by most analysts as supportive of the prospects for steady to perhaps fractionally lower rates.
Wednesday, March 24, 2010
Wednesday, March 24, 2010
New orders for durable goods rose for the third straight month in February as businesses rebuilt inventories by the largest margin in a year. The government said orders for long lasting manufactured goods rose 0.5% last month while the January figure was revised sharply upward to show a 3.9% increase.
Mortgage investors view the durable goods orders data as a leading indicator of manufacturing activity, which in turn provides a good measure of overall business health. In the strange world of the credit markets -- signs of improving economic conditions tend to create upward pressure on mortgage interest rates as investors anticipate an increased demand for capital to fund growth. When the demand for capital rises -- the attendant interest rates rise as well.
In a separate report the Commerce Department said the pace of new home sales unexpectedly fell by 2.2% in February. Most analysts had anticipated new home sales last month would improve modestly in February. The weather may have been a significant factor behind the outsized drop in new home sales, as much of the decline was centered in the Northeast. The pace of new home sales in coming months will likely remain subdued as the high jobless rate and extremely tight credit conditions continue to restrict demand for a while longer yet.
As they do every Wednesday, the Mortgage Banker's of America released their mortgage application index for the week ended March 19th. According to MBA, overall application activity dropped 4.2% from week earlier levels. Purchase application requests were up 2.7% while refinance applications slumped 7.1%. Refinance requests accounted for 65% of all applications and refi's represent 64.8% of the prospective loan volume. Looking further into the late spring and early summer months there are a number of reasons to believe the momentum of mortgage loan demand will improve. The pace of employment will likely prove to be upbeat enough to allay consumers' concerns while record-high affordability and a slowdown in home price declines will probably spur a large number of current "fence-sitters" to jump on the home buying bandwagon.
Uncle Sam will be splashing around in the credit market again this afternoon - looking to borrow $42 billion in the form of 5-year notes. The price for this security has fallen almost 100 basis-points since last week Tuesday. Traders love a deal - and the chance to buy such a high-quality, low-risk security as the Treasury's 5-year note at a deeply discounted price will likely prove hard to pass up. If this assessment proves accurate, this event will not likely influence the trend trajectory of mortgage interest rates one way or the other today.
Mortgage investors view the durable goods orders data as a leading indicator of manufacturing activity, which in turn provides a good measure of overall business health. In the strange world of the credit markets -- signs of improving economic conditions tend to create upward pressure on mortgage interest rates as investors anticipate an increased demand for capital to fund growth. When the demand for capital rises -- the attendant interest rates rise as well.
In a separate report the Commerce Department said the pace of new home sales unexpectedly fell by 2.2% in February. Most analysts had anticipated new home sales last month would improve modestly in February. The weather may have been a significant factor behind the outsized drop in new home sales, as much of the decline was centered in the Northeast. The pace of new home sales in coming months will likely remain subdued as the high jobless rate and extremely tight credit conditions continue to restrict demand for a while longer yet.
As they do every Wednesday, the Mortgage Banker's of America released their mortgage application index for the week ended March 19th. According to MBA, overall application activity dropped 4.2% from week earlier levels. Purchase application requests were up 2.7% while refinance applications slumped 7.1%. Refinance requests accounted for 65% of all applications and refi's represent 64.8% of the prospective loan volume. Looking further into the late spring and early summer months there are a number of reasons to believe the momentum of mortgage loan demand will improve. The pace of employment will likely prove to be upbeat enough to allay consumers' concerns while record-high affordability and a slowdown in home price declines will probably spur a large number of current "fence-sitters" to jump on the home buying bandwagon.
Uncle Sam will be splashing around in the credit market again this afternoon - looking to borrow $42 billion in the form of 5-year notes. The price for this security has fallen almost 100 basis-points since last week Tuesday. Traders love a deal - and the chance to buy such a high-quality, low-risk security as the Treasury's 5-year note at a deeply discounted price will likely prove hard to pass up. If this assessment proves accurate, this event will not likely influence the trend trajectory of mortgage interest rates one way or the other today.
Tuesday, March 23, 2010
Trading activity in the mortgage market is thin and sporadic this morning. Uncle Sam is looking to borrow $44 billion in the form of 2-year notes today. The short duration of this investment vehicle and the lack of other competing high-quality, low-risk investment alternatives in the global marketplace should produce solid demand at this afternoon's debt auction. If so, this event will not exert any discernible influence on the trend trajectory of mortgage interest rates today.
As expected, mortgage investors gave the February Existing Home Sales report nothing more than a passing glance. The National Association of Realtors said existing home sales fell 0.6% on a month-over-month basis -- while the pace of existing homes sales is 7.9% higher compared to a-year-ago. The median sales price decreased to $165,000 from $168,200 last year. The Realtors said winter storms did not affect existing home purchases much, with the worst-hit regions of the country actually posting sales increases during the month.
Mortgage investors made note of the fact the government's extended tax credit program has not made an impact on existing home sales so far. The April 30th deadline to sign a sales contract in order for the homebuyer to be eligible for tax break is fast approaching -- and may yet push the pace of sales higher. The challenge here is that most households who already own a home and wish to take advantage of the government's tax incentive to purchase a new home will, by necessity, have to sell their existing property in one of the weakest real estate market in decades in order to complete their purchase transaction. I don't know about you - but this sounds like one of those -- "I want you to learn to swim but don't get in the water" things to me. I think it can probably be safely assumed the impact of the extended tax credit program will likely fall short of the lofty expectations government data wonks have projected.
So now what?
The pace of sales for both new and existing home sales is far more dependent on job creation -- and improved job security for those currently employed -- than it is on government tax incentives and progressively lower mortgage interest rates.
One needs to simply note than in January new home sales touched their lowest level since records began in 1963 -- while the pace of existing home sales is running at late 1990's levels. The "so what" factor here is that housing sales are not improving even though the interest rate on a 30-year fixed-rate more was 4.96% during the week ended March 18th -- not far from the 4.71% reached on December 3rd -- which marked the lowest mortgage interest rate level in Freddie Mac's history going back to 1972. At this juncture it is readily apparent to even casual observers the level of mortgage interest rates is certainly not a significant impediment to housing sector sales growth.
From this point forward a strengthening job market will be required to drive a notable acceleration in the pace of new and existing home sales. That's the bad news part of today's housing news. The good news is that most analysts broadly expect sustained job growth to will begin to materialize in the second-half of the year.
As expected, mortgage investors gave the February Existing Home Sales report nothing more than a passing glance. The National Association of Realtors said existing home sales fell 0.6% on a month-over-month basis -- while the pace of existing homes sales is 7.9% higher compared to a-year-ago. The median sales price decreased to $165,000 from $168,200 last year. The Realtors said winter storms did not affect existing home purchases much, with the worst-hit regions of the country actually posting sales increases during the month.
Mortgage investors made note of the fact the government's extended tax credit program has not made an impact on existing home sales so far. The April 30th deadline to sign a sales contract in order for the homebuyer to be eligible for tax break is fast approaching -- and may yet push the pace of sales higher. The challenge here is that most households who already own a home and wish to take advantage of the government's tax incentive to purchase a new home will, by necessity, have to sell their existing property in one of the weakest real estate market in decades in order to complete their purchase transaction. I don't know about you - but this sounds like one of those -- "I want you to learn to swim but don't get in the water" things to me. I think it can probably be safely assumed the impact of the extended tax credit program will likely fall short of the lofty expectations government data wonks have projected.
So now what?
The pace of sales for both new and existing home sales is far more dependent on job creation -- and improved job security for those currently employed -- than it is on government tax incentives and progressively lower mortgage interest rates.
One needs to simply note than in January new home sales touched their lowest level since records began in 1963 -- while the pace of existing home sales is running at late 1990's levels. The "so what" factor here is that housing sales are not improving even though the interest rate on a 30-year fixed-rate more was 4.96% during the week ended March 18th -- not far from the 4.71% reached on December 3rd -- which marked the lowest mortgage interest rate level in Freddie Mac's history going back to 1972. At this juncture it is readily apparent to even casual observers the level of mortgage interest rates is certainly not a significant impediment to housing sector sales growth.
From this point forward a strengthening job market will be required to drive a notable acceleration in the pace of new and existing home sales. That's the bad news part of today's housing news. The good news is that most analysts broadly expect sustained job growth to will begin to materialize in the second-half of the year.
Monday, March 22, 2010
Monday, March 22, 2010
As you are probably aware -- the House of Representatives passed a sweeping health care reform bill yesterday in a special weekend session. The overall cost of the new health care program is expected to be $940 billion over ten years to provide coverage to 32 million uninsured Americans. According to the government, the cost of the program will be completely covered by a new tax on the highest earners, fees on health-care companies and hundreds of billions of dollars in Medicare savings As far as credit market participants are concerned this morning -- the enormous cost of the health care legislation is not troubling -- at least not today anyway.
Repeat from Friday's commentary: To finance the expanding national deficit the government will sell $44 billion of 2-year notes on Tuesday, $42 billion of 5-year notes on Wednesday and a $32 billion batch of 7-year notes on Thursday. Barring a "surprise" news event, the credit markets will likely absorb this new supply with little trouble. The world is awash in excess capital and people are still aggressively seeking hi-grade, low-risk investment opportunities. Nothing currently fits that profile better than dollar denominated Treasury debt obligations and agency eligible mortgage-backed security. The absence of even a hint of inflation pressure within the general economy -- together with the Fed's pledge to keep their benchmark short-term rates low for an "extended period of time" -- should collectively prove to be "just-the-thing" to attract aggressive bidding for these three debt instruments. If this assessment proves accurate, next week's solid Treasury auction results will tend to be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.
The coming Treasury auctions will likely easily trump the release of the February home sales figures. The Existing Home sales numbers are due at 8:30 a.m. ET next Tuesday and the New Home sales report will follow at 8:30 a.m. ET on Wednesday. The consensus estimate among economists is currently calling for a 1.0% decline in the pace of Existing Home sales while New Home sales are expected to post a barely perceptible improvement of 0.03%. Look for mortgage investors to give this data nothing more than a passing glance.
For those interested in such things - as of last Thursday the Fed has just a little more than $14 billion left to spend of their original $1.25 trillion "war chest" set aside for the direct purchase of mortgage-backed securities. The Fed plans to conclude this program on March 31st as originally scheduled. The widespread worry that the end of the program would produce a sharp rise in mortgage interest rates will likely prove to be grossly overblown. It currently appears there is more than an adequate amount of cash on the sidelines to buy the smaller supply of mortgage-backed securities coming on line. Once mortgage demand picks up later this year the Fed's absence may be felt more acutely - but for the time being the end of their direct mortgage-backed security purchase program will likely pass with little visible evidence on most of your mortgage investors' rate sheets.
Repeat from Friday's commentary: To finance the expanding national deficit the government will sell $44 billion of 2-year notes on Tuesday, $42 billion of 5-year notes on Wednesday and a $32 billion batch of 7-year notes on Thursday. Barring a "surprise" news event, the credit markets will likely absorb this new supply with little trouble. The world is awash in excess capital and people are still aggressively seeking hi-grade, low-risk investment opportunities. Nothing currently fits that profile better than dollar denominated Treasury debt obligations and agency eligible mortgage-backed security. The absence of even a hint of inflation pressure within the general economy -- together with the Fed's pledge to keep their benchmark short-term rates low for an "extended period of time" -- should collectively prove to be "just-the-thing" to attract aggressive bidding for these three debt instruments. If this assessment proves accurate, next week's solid Treasury auction results will tend to be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.
The coming Treasury auctions will likely easily trump the release of the February home sales figures. The Existing Home sales numbers are due at 8:30 a.m. ET next Tuesday and the New Home sales report will follow at 8:30 a.m. ET on Wednesday. The consensus estimate among economists is currently calling for a 1.0% decline in the pace of Existing Home sales while New Home sales are expected to post a barely perceptible improvement of 0.03%. Look for mortgage investors to give this data nothing more than a passing glance.
For those interested in such things - as of last Thursday the Fed has just a little more than $14 billion left to spend of their original $1.25 trillion "war chest" set aside for the direct purchase of mortgage-backed securities. The Fed plans to conclude this program on March 31st as originally scheduled. The widespread worry that the end of the program would produce a sharp rise in mortgage interest rates will likely prove to be grossly overblown. It currently appears there is more than an adequate amount of cash on the sidelines to buy the smaller supply of mortgage-backed securities coming on line. Once mortgage demand picks up later this year the Fed's absence may be felt more acutely - but for the time being the end of their direct mortgage-backed security purchase program will likely pass with little visible evidence on most of your mortgage investors' rate sheets.
Friday, March 19, 2010
Friday, March 19, 2010
Ohio U really?? wow!!
The sell-off in the credit markets yesterday afternoon was largely a function of money-center banks and other major broker/dealers selling assets out of existing portfolios to make room in front of next week's $118 billion three-part Treasury auction.
To finance the expanding national deficit the government will sell $44 billion of 2-year notes on Tuesday, $42 billion of 5-year notes on Wednesday and a $32 billion batch of 7-year notes on Thursday. Barring a "surprise" news event, the credit markets will likely absorb this new supply with little trouble. The world is awash in excess capital and people are still aggressively seeking hi-grade low-risk investment opportunities. Nothing fits that profile better than dollar denominated Treasury debt obligations and agency eligible mortgage-backed security. The absence of even a hint of inflation pressure within the general economy -- together with the Fed's pledge to keep their benchmark short-term rates low for an "extended period of time" -- should collectively prove to be "just-the-thing" to attract aggressive bidding for these three debt instruments. If this assessment proves accurate, next week's solid Treasury auction results will tend to be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.
The coming Treasury auctions will likely easily trump the release of the February home sales figures. The Existing Home sales numbers are due at 8:30 a.m. ET next Tuesday and the New Home sales report will follow at 8:30 a.m. ET on Wednesday. The consensus estimate among economists is currently calling for a 1.0% decline in the pace of Existing Home sales while New Home sales are expected to post a barely perceptible improvement of 0.03%. Look for mortgage investors to give this data nothing more than a passing glance.
For those interested in such things - as of last Thursday the Fed has just a little more than $14 billion left to spend of their original $1.25 trillion "war chest" set aside for the direct purchase of mortgage-backed securities. The Fed plans to conclude this program on March 31st as originally scheduled. The widespread worry that the end of the program would produce a sharp rise in mortgage interest rates will likely prove to be grossly overblown. It currently appears there is more than an adequate amount of cash on the sidelines to buy the smaller supply of mortgage-backed securities coming on line. Once mortgage demand picks up later this year the Fed's absence may be felt more acutely - but for the time being the end of their direct mortgage-backed security purchase program will likely pass with little visible evidence on most of your mortgage investors' rate sheets
The sell-off in the credit markets yesterday afternoon was largely a function of money-center banks and other major broker/dealers selling assets out of existing portfolios to make room in front of next week's $118 billion three-part Treasury auction.
To finance the expanding national deficit the government will sell $44 billion of 2-year notes on Tuesday, $42 billion of 5-year notes on Wednesday and a $32 billion batch of 7-year notes on Thursday. Barring a "surprise" news event, the credit markets will likely absorb this new supply with little trouble. The world is awash in excess capital and people are still aggressively seeking hi-grade low-risk investment opportunities. Nothing fits that profile better than dollar denominated Treasury debt obligations and agency eligible mortgage-backed security. The absence of even a hint of inflation pressure within the general economy -- together with the Fed's pledge to keep their benchmark short-term rates low for an "extended period of time" -- should collectively prove to be "just-the-thing" to attract aggressive bidding for these three debt instruments. If this assessment proves accurate, next week's solid Treasury auction results will tend to be supportive of the prospects for steady to perhaps fractionally lower mortgage interest rates.
The coming Treasury auctions will likely easily trump the release of the February home sales figures. The Existing Home sales numbers are due at 8:30 a.m. ET next Tuesday and the New Home sales report will follow at 8:30 a.m. ET on Wednesday. The consensus estimate among economists is currently calling for a 1.0% decline in the pace of Existing Home sales while New Home sales are expected to post a barely perceptible improvement of 0.03%. Look for mortgage investors to give this data nothing more than a passing glance.
For those interested in such things - as of last Thursday the Fed has just a little more than $14 billion left to spend of their original $1.25 trillion "war chest" set aside for the direct purchase of mortgage-backed securities. The Fed plans to conclude this program on March 31st as originally scheduled. The widespread worry that the end of the program would produce a sharp rise in mortgage interest rates will likely prove to be grossly overblown. It currently appears there is more than an adequate amount of cash on the sidelines to buy the smaller supply of mortgage-backed securities coming on line. Once mortgage demand picks up later this year the Fed's absence may be felt more acutely - but for the time being the end of their direct mortgage-backed security purchase program will likely pass with little visible evidence on most of your mortgage investors' rate sheets
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